Rating Action: Moody's downgrades Bausch Health's CFR to Caa2; outlook negativeGlobal Credit Research - 31 Aug 2022New York, August 31, 2022 -- Moody's Investors Service ("Moody's") downgraded certain ratings of Bausch Health Companies Inc. ("Bausch Health") and certain of its subsidiaries. The downgrades include the Corporate Family Rating to Caa2 from Caa1, the Probability of Default rating to Caa3-PD from Caa1-PD, the senior secured ratings to B3 from B2, and the senior unsecured rating to Caa3 from Caa2. The Caa3 rating on the company's senior unsecured notes is likely to be downgraded further if the company's proposed debt restructuring transaction is completed. In addition, Moody's assigned a B3 (LGD2) rating to the company's proposed new senior secured notes, and a Caa3 (LGD4) rating to the company's proposed second lien secured notes. These notes, together with secured notes at a new intermediate holding company (unrated), are being offered as an exchange for certain unsecured notes in a debt restructuring transaction that Moody's deems to be a distressed exchange. There is no change to the company's Speculative Grade Liquidity Rating SGL-2.Moody's affirmed the B1 rating on the secured credit facilities of Bausch + Lomb Corporation.The outlook on all entities remains negative.The downgrades follow the company's announcement of a proposed debt restructuring transaction that would replace existing senior unsecured debt with new first lien and second lien secured bonds. The restructuring, if completed, would constitute a distressed exchange, which is an event of default under Moody's definition. Notwithstanding the reduction in debt and financial leverage that will ensue if the transaction is completed, the Caa2 Corporate Family Rating and Caa3-PD Probability of Default Rating more properly reflect the risks associated with the pursuit of distressed exchange transactions and additional actions the company may take to address its capital structure. In addition, the Caa3 unsecured rating reflects Moody's estimate of expected loss for unsecured creditors participating in the exchange.If the debt restructuring is completed, Moody's anticipates a further downgrade of the company's unsecured notes to Ca from Caa3. This future downgrade would reflect the level of subordination arising from the proposed exchange offer in which the mixture of secured to unsecured debt would substantially weaken the credit quality of both secured and unsecured debt outstanding. In addition, after the restructuring transaction, Moody's anticipates downgrading the Speculative Grade Liquidity Rating to SGL-3 from SGL-2 reflecting tightening cushion in the secured leverage covenant of the revolving credit facility.Governance risk is a consideration in the rating action. The debt restructuring transaction has negative implications for creditors as it relates to financial strategy and risk management.Downgrades:..Issuer: Bausch Health Companies Inc..... Corporate Family Rating, Downgraded to Caa2 from Caa1.... Probability of Default Rating, Downgraded to Caa3-PD from Caa1-PD....Senior Secured Bank Credit Facility, Downgraded to B3 (LGD2) from B2 (LGD2)....Senior Secured Regular Bond/Debenture, Downgraded to B3 (LGD2) from B2 (LGD2)....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa3 (LGD4) from Caa2 (LGD5)..Issuer: Bausch Health Americas, Inc.....Backed Senior Unsecured Regular Bond/Debenture, Downgraded to Caa3 (LGD4) from Caa2 (LGD5)Affirmations:..Issuer: Bausch + Lomb Corporation....Senior Secured Bank Credit Facility, Affirmed B1 (LGD1)Assignments:..Issuer: Bausch Health Companies Inc.....Senior Secured First Lien Regular Bond/Debenture, Assigned B3 (LGD2)....Senior Secured Second Lien Regular Bond/Debenture, Assigned Caa3 (LGD4)Outlook Actions:..Issuer: Bausch Health Americas, Inc.....Outlook, Remains Negative..Issuer: Bausch Health Companies Inc.....Outlook, Remains Negative..Issuer: Bausch + Lomb Corporation....Outlook, Remains NegativeRATINGS RATIONALEBausch Health's Caa2 Corporate Family Rating reflects its high financial leverage with gross debt/EBITDA of about 7x using Moody's calculations and reflecting several recent transactions including the IPO of Bausch + Lomb Corporation. Although the recently proposed debt restructuring would reduce debt/EBITDA to about 6.5x on a total-company basis, the credit profile is materially constrained by the exposure to potential genericization of Xifaxan the company's largest product. A recent court decision invalidated certain Xifaxan patents and validated others. The timing of a generic launch remains uncertain, but would materially raise financial leverage and the overhang has led to an untenable capital structure. A planned spin-off of Bausch + Lomb would increase business risks of the remaining company due to reduced scale and diversity and high leverage initially, with targeted net debt/EBITDA of 6.5x to 6.7x on an ex-Bausch + Lomb basis, and faces execution risks in attaining this target.These risks are tempered by the company's significant global scale and diversity and solid cash flow. The credit profile is supported by good liquidity, including solid free cash flow and revolver availability.The B3 rating on Bausch Health Companies Inc.'s senior secured revolving credit facility, term loan and secured notes reflects a 1-notch negative override to the outcome produced from Moody's Loss Given Default for Speculative-Grade Companies Methodology. This reflects Moody's view of the potential for an increase in the proportion of secured debt in the capital structure to support debt exchange transactions.ESG considerations are material to Bausch Health's credit profile, reflected in the Credit Impact Score of CIS-5, Very Highly Negative. Bausch Health faces very highly negative governance risk exposures, reflected in the G-5 score. Despite a consistent debt reduction strategy, gross debt/EBITDA has remained persistently high, creating financial strategy and risk management exposures which are now elevated following the Xifaxan court ruling. In addition, the company faces execution risk in completing the Bausch + Lomb spinoff as well as subsequently operating the remaining Bausch Pharma business, highlighting management credibility and track record risks. In addition, like other pharmaceutical companies Bausch Health has highly negative exposures to social risks, reflected in the S-4 score. These exposures include a variety of unresolved legal issues, notwithstanding significant progress to date at resolving such matters. Other social risks include exposure to regulatory and legislative efforts aimed at reducing drug pricing. Bausch Health's product and geographic diversification help mitigate some of that exposure, as well as business lines outside of branded pharmaceuticals.The negative outlook reflects the potential for additional credit degradation that would ensue from a generic Xifaxan launch, or from additional distressed exchange transactions. The potential separation of Bausch + Lomb Corporation remains uncertain, but would be credit negative based on reduced scale and diversity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that could lead to a downgrade include generic competition for Xifaxan, other operating setbacks, large litigation-related cash outflows, deteriorating liquidity or additional transactions that increase the probability of default.Factors that could lead to an upgrade include clarity in avoiding or delaying generic competition for Xifaxan, solid operating performance, and successful pipeline execution of new rifaximin formulations. Debt reduction would also improve the company's credit profile.Bausch Health Companies Inc. is a global company that develops, manufactures and markets a range of pharmaceutical, medical device and over-the-counter products. These are primarily in the therapeutic areas of eye health, gastroenterology and dermatology. Revenues for the 12 months ended June 30, 2022 totaled approximately $8.2 billion.The principal methodology used in these ratings was Pharmaceuticals published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356413. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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